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Do We Really Need a Compensation Czar? Or Maybe a Different Kind of Czar?

Deborah Solomon at The Wall Street Journal reports that:

The Obama administration plans to appoint a "Special Master for Compensation" to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines, according to people familiar with the matter.

Talk about a wonderful example of having to play the King's tune when you take the King's shilling. This is the executive pay czar that the administration has been talking about ever since they seized upon the outrage over executive compensation and turned it into a populist cause. The czar will make sure that executive compensation for companies who have taken—or will take—falls within the guidelines developed by President Obama. These guidelines include limiting salary for top executives and requiring that additional pay be in the form of restricted stock, vesting only after the company repays its debt, with interest, to the government. Congress added even tougher rules on bonuses for top earners at companies receiving TARP money, barring them from paying those executives bonuses that exceed a third of their total compensation. Throw in the administration's efforts to change the way the financial sector pays its employees—to keep them from paying people in a way that would threaten the safety and soundness of the bank—and you can see that Mr. Kenneth Feinberg, the man likely to get the job, will have his hands full.

From a political point of view, this is a slam dunk. The people are outraged at the huge sums of money these people made while their firms, overloaded with bad debt and crippled by questionable mark-to-market accounting regulations, went under. Obama comes in, judiciously saves some, lets others go to the wall, and demands accountability, transparancy and even a dose of humility from these former masters of the universe. He will end this terrible injustice and the people will see his efforts and love him for it.

The problem is that politics is not business and rarely reflects anything even remotely like the real world. It certainly does little, if anything, to help business or the economy. In this case, companies that cannot pay the big bucks are not likely to get the big talent, which will impede their ability to compete. That may be why Obama wants to revamp the entire pay system for the financial industry. By leveling the playing field, the temptation to find greener pastures will drop dramatically.

The real question, though, is whether we need a “Special Master for Compensation” (will people be walking around calling him “Master” all day?) or some other kind of czar. After all, czars get appointed to sort out things that have gone horribly awry, right? There is a problem with the auto industry, for example, and we get a car czar. We also get a controlling interest in General Motors and Chrysler to go along with that. Well, there is a harrowing problem in this country and it is getting worse by the day. I speak, of course, about the economy. Former Clinton advisor Dick Morris summed-up the current economic situation and Obama's response to it as follows:

In April, personal household, inflation-adjusted income rose by $122 billion. Of that increase, one-third or $44 billion came from the government’s stimulus program. But while personal income was rising, household savings (which includes paying down credit card balances, mortgages, student loans, car loans, etc) rose by $132 billion — $10 billion more than the rise in income. So personal consumption dropped 0.1%.

The stimulus package was a total and complete failure. As predicted, as happened with Bush’s 2008 tax cut, as happened with the Japanese stimulus packages of the 90s, fearful consumers sat on their money and wouldn’t spend it. Keynesian economics didn’t work. Again.

But the debt sure piled up. The deficit quadrupled and is sending interest rates soaring as the government elbows aside businesses and consumers at the loan window, all in a desperate effort to borrow enough money to spend enough money to stimulate the economy which isn’t happening.

Keynesian economics doesn’t work. The theory for rational expectations has taken its place. Consumers are not idiots. They know that when their paycheck is fatter - either because of tax cuts or government spending - that it is not the beginning of nirvana but just a short term, one shot respite from hard times. They know the difference between standing in front on an electric fan and a windy day.

Barack Obama has fatally undermined our currency, our solvency, our financial stability, and - ultimately - our economy all to spend money that has had no economic effect!

When folks from your own party are looking at your policies and seeing nothing but scortched earth, it is time to rethink things. The problem is, that rethinking will not happen. Obama has turned to policies that have been tried—and have failed miserably—time and again because free-market capitalism does not fit well with his left-wing ideology. More than that, these policies have taken a recession, which would have naturally eased by now, and are making it worse and more long-lasting. Last time this happened, it was set into motion by Franklin Delano Roosevelt and it took World War II to stop it.

The Bottom Line

By the President's own logic, the executives are out of control and the business—in this case the Federal Government—is on a sure road to ruin. More than that, it will destroy the US economy in the bargain! If we apply the remedy that Obama is pushing on the private sector, then it is time to appoint a Government Czar, to sort things out and make changes so the government is run correctly and the economy is saved. A noted business leader, an entrepreneur with a track record of sound, real world, financial success—someone who knows how to make a profit—who can bring that experience to bear on the economic problems we face.

I know that such a Czar would not be ideologically palatable to Obama, Pelosi and the rest, but I really have to wonder: Would the Government Czar decide to fire Obama and the other leaders who brought us to this ruinous point? That may be why they would never appoint one.

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